Risk Management Is the Greatest Benefit Offered

Risk management is the greatest benefit offered by a strategic, forward-thinking approach to management. In an uncertain economic environment, companies must constantly 'hedge their bets' as to what is the superior choice between mutually exclusive alternatives. Strategic management promotes the efficient use of resources by forcing companies to constantly anticipate the future, plan ahead, and make the best economic choices possible, given the company's current framework of knowledge. No company can predict everything that may happen but the consistent data-gathering that is required in a strategic management approach and trend-monitoring allows the company to be more flexible and responsive.

As well as avoiding bad decisions, effective strategic management also means knowing when to take advantage of possible opportunities and invest in good decisions. Risk management entails knowing when to take calculated risks, even if this means a major allocation of organizational resources, such as for a new form of technology or being a first-mover in a new international market. Knowing how to make trade-offs, when to commit and not to commit to an alternative requires a forward-thinking approach. Without strategic management, companies simply react -- often wastefully -- to the present moment, which results in missed opportunities and a failure to capitalize upon existing strengths. Resources must be used effectively to invest in growth. Operating in 'panic mode' in the absence of strategic management is financially and emotionally stressful for a company.

Q2. As job growth continues to be sluggish, interest rates will continue to remain at historically low levels. Fed Chairman Ben Bernanke may make a token concession to worries about inflation and raise them slightly, but both the Obama Administration and most major economists believe that job growth must be a priority, and businesses and individuals must have the ability to borrow, spend money, and fuel the generation of more job-generating growth. However, the stock market has continued to do well, despite economic frustrations. The stock market and job growth do not necessarily improve concurrently. The stock market can be highly responsive to other economic signs, such as rumors and worries about particular industries and companies (such as the recent downturn of Apple stock in response to Steve Job's health worries), while unemployment and employment tends to be more 'sticky' and dependent upon real, economic factors like consumer demand. The stock market is highly sensitive assumptions about the future, as reflected economic data about consumer confidence, housing purchases, and other factors that can drive up -- or down -- the prices of stock.

The stock market is responsive to world events, while the Fed focuses on immediate domestic conditions more closely. The growth of multinationals may mean that stock prices may be trending upward, based upon global economic health, but some of the domestic factors that the Fed takes into consideration (such as American unemployment) can result in interest rates trending downward or remaining the same.

Q3.

A resource-based view of the firm stresses that when firms have resources that are rare, non-imitable and cannot be substituted, such firms have a clear, lasting competitive advantage (Wade 2005). More so than external market conditions, having these valuable types of resources mean that a firm has 'locked in' demand, in contrast to its competitors. Even when there are negative external factors that impact the firm, such as a recession, it does not matter if the need for the firm's resources is sufficiently strong. For example, even in the wake of the recent recession, not all firms were impacted in as negative a fashion as the financial industry: Apple, Google, and firms that have branded themselves as 'unique' and offer necessary technology and services have proved to be more durable.

But ultimately, the RBV of the firm cannot explain that, while not all firms may be equally harmed by negative economic events, no firm is immune to the external market environment. When the economy contracts, fewer resources are used overall, including gas and oil, despite the fact that there are few substitute goods for these items. The diversity of the global economy means that more substitutes are readily available than ever before, and consumers have greater access to choice and the ability to research different products and prices. And while some goods and services may be rare, consumers can easily cut back upon their use, if it is deemed too expensive for the household's budget.